Treasury prices rise as Mideast tensions spur bond buying

NEW YORK, April 12 – Treasury prices rose on Friday, pushing yields lower as Middle East tensions spurred safe-haven buying and as hot inflation readings earlier this week forced investors to sharply readjust their outlook for Federal Reserve interest rate cuts.

Boston Fed President Susan Collins said she’s eyeing two rate cuts this year, adding her voice to other Fed officials who have recently pushed back on market views for a quick series of cuts and an easing of monetary policy.

Collins’ remarks followed a speech in which she said the US central bank is likely to cut its policy rate at some point this year but that uncertainties and risks around inflation mean the Fed needs to take its time before doing so.

Treasury buying also was spurred by dour results from several large US banks, including JPMorgan JPM.N, the biggest US bank by assets, and Israeli fears of an imminent attack by Iran or its proxies also played a part, analysts said.

“A lot of investors don’t want to be holding risky assets heading into the weekend, and there’s a little bit of disappointment on some of the bank earnings as well,” said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York.

But the biggest catalyst was the hotter-than-expected report on the consumer price index on Wednesday.

“This report has challenged a lot of the assumptions that the market has had about the Fed cycle and what that means for broader asset markets,” said Brian Daingerfield, a macro strategist at NatWest Markets in Stamford, Connecticut.

“What the CPI print has forced the market to reckon with is this possibility that the Fed might be in a position to not cut at all this year,” he said. “You have this reset higher in rates, this reset higher in expectations and this change in the discussion around the Fed.”

The two-year Treasury’s yield surged past 5% on Thursday as futures traders slashed bets on the number of Fed rate cuts to two and pushed back the start of the easing cycle to September from expectations of June.

Market bets on the Fed cutting its target rate in June fell to 27.1%, down from 53.2% last week, according to the CME Group’s FedWatch Tool.

The yield on two-year Treasury notes, which typically moves in step with interest rate expectations, slid 8.1 basis points to 4.8822%, while the yield on the benchmark 10-year Treasury note’s yield fell 5.8 basis points to 4.499%.

“Some investors are buying the dip, so to speak, and making sure that they get in at these highly attractive levels,” Goldberg said. “There’s a lot of uncertainty as to what happens next. A lot of investors are debating whether rate cuts are still possible this year.”

The difference in two- and 10-year Treasury yields, seen as a recession harbinger when a shorter-duration yield is higher, or inverted, than longer securities, was at -38.24 basis points.

The yield on the 30-year bond fell 6 basis points to 4.603%.

(Reporting by Herbert Lash; Editing by Andrea Ricci)